captioning sponsored by macneil/lehrer productions >> woodruff: republican presidential hopefuls ratchet up attacks on frontrunner mitt romney after his big win in new hampshire last night. good evening, i'm judy woodruff. >> ifill: and i'm gwen ifill. on the "newshour" tonight, we get the latest on the campaign as the candidates all head to south carolina for the next contest ten days away. >> woodruff: and we explore romney's tenure as head of the investment firm, bain capital. >> ifill: then, paul solman explores a debate over taxes. does raising the rate on the wealthy produce more government revenue?

i don't think raising taxes on the upper income makes sense in economy at this time. >> i'm in the top 1% and i'm trying to make every extra dollar i can even though i'm at the top marginal tax rate. >> woodruff: margaret warner examines today's supreme court decision shielding a church- based school from an anti- discrimination law suit. >> ifill: and jeffrey brown looks into a new law that gives the military more authority to detain terror suspects. >> woodruff: that's all ahead on tonight's "newshour." major funding for the pbs newshour has been provided by: ♪ ♪

moving our economy for 160 years. bnsf, the engine that connects us. and by the alfred p. sloan foundation. supporting science, technology, and improved economic performance and financial literacy in the 21st century. and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. >> ifill: the battle for the republican presidential nomination turned to south carolina today as the winner of the year's first two contests in iowa and new hampshire gathered momentum, and his opponents tried to blunt it. for mitt romney, there was much

to savor: a new hampshire victory, and word that he's now got $19 million in the bank. but the campaign's undisputed republican frontrunner decided today to tamp down expectations. >> i don't know if i can win south carolina. i was fourth there last time i ran. i know it's an uphill battle, but, you know, i'll tell you the sendoff i got from new hampshire last night that's going to give me a real boost. >> ifill: romney is now the common target, as rivals like newt gingrich launch fresh attacks on his business background. >> criticizing specific actions in specific places is not being anti-free enterprise. and crony capitalism, where people pay each other off at the expense of the rest of the country, is not free enterprise. and raising questions about that is not wrong. ( applause ) >> ifill: texas governor rick perry, on the stump, is accusing romney of engaging in "vulture," not venture, capitalism. perry skipped new hampshire to make his case in south carolina.

he says romney's former company bain capital cost local jobs there. >> they used their company to come in and close photo album manufacturing in gaffney and 150 people lost their jobs there and they made $20 million off of management fees. and somehow people are just like, well that's just capitalism. you can't be criticizing that. >> ifill: romney headed bain, a venture capital and private equity firm, in the 1980s and '90s. >> a group of corporate raiders and their c.e.o., mitt romney, more ruthless than wall street. >> ifill: gingrich ces crism ntained ian onlin film produced by some of his supporters. it highlights the stories of people who lost jobs at companies bain bought and sold. but texas congressman ron paul, defending romney, cautioned fellow republicans against taking that argument too far.

>> i don't think they understand the market, or they're just demagoguing, if they understand the market, then i think they're just demagoguing the issue. >> ifill: last night, romney suggested his critics were doing the democrats' dirty work. >> president obama wants to put free enterprise on trial and in last few days we've seen some desperate republicans join forces with him. ( boos ) this is such a mistake for our party and our nation. the country already has a leader who divides us with the bitter politics of envy, we have to offer an alternative vision. i stand ready to lead us down a different path where we are lifted up by a desire to succeed, not dragged down by resentment of success. >> ifill: and this morning, on abc, he said his economic experience is precisely the quality that most qualifies him for the presidency. >> i think the people in south carolina want someone who knows how to work the economy for the benefit of america and can get good jobs back in this country and keep us an opportunity nation. >> ifill: the criticism of the

undisputed frontrunner has now spread to south carolina's radio and television airwaves. >> what happened after massachusetts moderate changed his position from pro abortion to pro life? >> ifill: the gingrich ad highlights a reversal romney himself acknowledges-- that he changed his mind on abortion while governor of massachusetts. also competing for attention among south carolina's more conservative voters is pennsylvania senator rick santorum, who ran neck and neck with gingrich in new hampshire. and after ending up in third place last night, former utah governor jon huntsman used what he called his ticket to ride to try to defy expectations in the palmetto state. >> there are some in this race who say maybe it's better to put politics first. if you believe in putting politics first, i'm not your guy. i believe in putting this country first and i always will. >> ifill: after rising in south carolina polling as gingrich sanks, romney is hoping to use south carolina to permanently seal his frontrunner status with ten days to go.

now, more about what is happening on the ground in south carolina. reid wilson is editor in chief of "national journal's hotline," a political newsletter. and david woodard is a political science professor at clemson university. he conducts the school's palmetto poll and has worked as a republican political consultant, though not for any of this year's presidential candidates. reid wilson, you've been following these candidates hither and yon. tell me how is mitt romney positioned now in south carolina? >> well, mitt romney comes to south carolina from new hampshire in first place and with momentum behind him. he's already won the first two contests in this cycle and the last reliable poll conducted last week by cnn and "time" magazine shows he's at about 37% which is twice what rick santorum and newt gingrich have. as well add in a little rick perry and there you have the entire story of the campaign so far. a social conservative vote that's being split among a number of candidates and the

more fiscally conservative more socially moderat section of the south carolina electorate lining up behind romney. nobody's splitting his vote. the other vote is being split at least three ways. >> ifill: professor woodard, does the landscape look like that to you? >> it looks pretty much like that. i think rand paul... excuse me, ron paul is playing a larger role maybe than we thought before but the main issue social conservatives are divided into three camps. >> ifill: tell us what we should be looking for in south carolina. in iowa we saw social conservatives. in new hampshire we saw fiscal conservatives and in south carolina we're looking for what? >> the social conservatives usually find a candidate they line up behind. in 2008 it was huckabee. he surged dramatically at the end and lost by three points to john mccain. the question is, can they get behind one candidate, coalesce and try and push him ahead of romney. >> ifill: reid, we saw a lot of commentary last night about how

strong romney finished in new hampshire and i wonder if there was any concern on the ground there. are you hearing people say "well it's all over but the shouting" or that south carolina can completely turn things up side down? >> well, south carolina is a state that likes a little bit of momentum. ever since 1980 when ronald reagan won the state they have picked either the winner of iowa or the winner of new hampshire and the candidate who wins south carolina ends up winning the whole republican nomination. this time around there's still a little bit of chance, i suppose, that the social conservatives could rally around one candidate. but it's hard to figure out why they would now when they failed to in iowa, when they couldn't raise any kind of real firewall in new hampshire. where there's just sort of... there has not been a unifying moment behind one of the candidates. three candidates who were vying for that social conservative support are still in the race right now, still viable right now, and because three of them are viable, that means that none of them are viable.

>> ifill: professor woodard, we hear a lot about the cost of running advertising. there wasn't as much advertising in new hampshire, it was a lot in iowa and it's supposed to be cheaper in south carolina. so are you seeing a lot of influx from these campaigns of negative advertising mostly. >> i talked to one of the campaign this is morning. they said all the t.v. has been bought in south carolina for the whole week. if you watch t.v., it's just one ad after another then back to the show then one ad after another. it's just really numbing how quickly they're coming here. and a lot of them are negative. nil fill and what are the issues professor, that move people to go to the polls in south carolina? we know other places everyone's talking about the economy and south carolina's a much poorer state than new hampshire, for instance. >> well, that's right. i think the economy is the number-one issue, that's what our polls down here are saying. federal spending being number one, unemployment and jobs being number two, bickering in

washington being number three. and yet the historic pattern in south carolina has been to focus on social issues at election time in the presidential primary. >> ifill: reid wilson, are you watching it all for a tea party affect in south carolina? we haven't seen much evidence of the tea party affect that we saw play out in the 2010 midterm elections. >> we really haven't and i don't think there's going to be any sort of concerted tea party movement getting behind one candidate or another this time. i think the tea party factions are just as divided as the social conservative faction at large. there has not been any sort of groundswell behind one candidate. one thing we have seen, though, is a... the rise of ron palm as sort of a stagnant figure. in iowa he got 18%. in new hampshire last night he got in the low 20s. he's probably going get somewhere around there in south carolina as well. they're not... those folks aren't necessarily the tea party conglomerate but the ron paul fans are the ones who are sort of most steadily behind their own candidate this year, even

mitt romney doesn't have the solid core of a fan base that ron paul does. >> ifill: and yet, professor woodard, we hear today that senator jim demint, who is a hero in tea party circled, you've co-authored a book with him, he said he expects romney to win in south carolina. >> well, that's kind of strange. he's not endorsing anybody but i think he sees the way the social conservatives are divided and can't seem to find a champion which means by default it goes to mitt romney. there has been quite a bit of discussion here about ron paul and his affect because he's coming with momentum out of new hampshire, too. he usually polls in south carolina about 12% to 15%. i wouldn't be surprised to see him do better than that this time. >> ifill: let me ask you the follow-up on that. one of the things you mentioned a moment ago was mike huckabee and how well he did four years ago. mitt romney was in fourth place four years ago in south carolina and actually as you point out nobody saw mike huckabee coming. he didn't reflect that well in

the polls at all. so it is possible everything can get turned up side down? >> i was in the poll center four years ago and we saw tremendous movement in voter decisions within the last three days before the vote. if that happens again, in addition could happen. but right now i tend to agree are reid. i think person with momentum is romney. the discussion is on issues that are helping romney and i don't see a surge to any one candidate right now. we still have ten days to go. we'll see. >> ifill: and yet, reid wilson, rick perry, newt gingrich are prepared to spend money accusing mitt romney of vulture capitalism, as rick perry puts it. crony capitalism, as newt gingrich puts it. what is their strategy that takes them to some sort of opening there. >> well, let's look at the... one thing i think is important to look at is what south carolina voters are seeing and right now they're seeing two things: a very small number of positive spots, largely coming from mitt romney and a superpac

that backs mitt romney and a number of positive spots coming from rick perry's campaign the other thing they're seeing the negative advertisements from rick santorum and newt gingrich blasting romney. there are two possible things that could happen here. one is this could backfire and mitt romney won't lose support and he ends up winning next saturday. the other, though, is that mitt romney's position does fall, negative advertising has an impact on both the candidate you're running ads against and yourself and therefore if another candidate is going to sweep into the vacuum created by any potential romney fall, maybe it's the guy running the other positive ads, rick perry. so perry has a little shot left, a small window that will creep back into this thing and into some kind of tie for second or third. >> pelley: reid wilson of "national journal" hotline and dave woodard of clemson university, thank you both so much. >> thank you. >> thank you. >> woodruff: we'll take a closer

look at romney's work for bain capital later in the program. also coming up, the debate over taxing the rich; a church state ruling at the supreme court and the law on military detention. but first, the other news of the day. here's hari sreenivasan. >> sreenivasan: assassins struck a new blow at iran and its nuclear program today. a hit and run bombing killed a top nuclear scientist in tehran. we have a report narrated by lindsey hilsum of "independent television news." >> reporter: death on the streets of tehran. the fourth iranian nuclear scientist to be targeted like this in two years. a magnet bomb was attached to his car by a passing motor- cyclist. the scientist and two passengers, believed to be bodyguards, were killed. the iranian government blames the israeli secret service, mossad, for trying to sabotage iran's nuclear program. mostafa ahmadi roshan was a senior official at natanz, iran's uranium enrichment facility. he's reported to have recently met officials from the international atomic energy agency.

today his family were in mourning. one m.p. blamed the agency for leaking his details to iran's enemies. >> sreenivasan: in washington, a white house spokesman said the u.s. condemns all such acts of violence. and secretary of state hillary clinton went further. >> i want to categorically deny any united states involvement in any kind of act of violence inside iran. >> sreenivasan: in israel, the head of the military had suggested tuesday that things might happen unnaturally to iran in 2012. today, the chief military spokesman said, "i don't know who settled the score with the iranian scientist, but i certainly am not shedding a tear." a brewing crisis between the government of pakistan and the country's military grew worse today. the prime minister fired the defense secretary. it was the latest fallout from a leaked memo that asked the u.s. to help rein in the pakistani military. the army has a history of seizing power, and it warned of

grievous consequences after today's firing. meanwhile, in the southwest gunmen ambushed and killed 14 paramilitary troops. in syria, president bashar assad made a rare public appearance at a pro-government rally in damascus. assad told thousands of supporters to have faith in the future. he again branded the uprising against his regime as a conspiracy and insisted his regime will defeat it. >> ( translated ): i wanted to be with you in damascus in the heart of the capital which some parties wanted to revert from the land of harmony, love, and peace to a land of destruction, killing and ruin. but they will not succeed in achieving this goal. >> sreenivasan: also today, a journalist with france 2 television was killed in a grenade attack in the city of homs. he was on a government-approved trip there, when it happened. seven other people were killed as well, and 25 were wounded. europe's main economic engine is sending out new warnings of a recession. germany reported today its economy pulled back in the fourth quarter of 2011, shrinking by a quarter of a

percent. the news kept wall street in check, atraders considered thr options. th dow jonesndustrial average lost 13 points to close at 12,449. the nasdaq rose eight points to close at 2,710. the company that makes twinkies and wonder bread and other iconic brands may be facing an end. hostess brands filed for federal bankruptcy protection today for the second time in a decade. it cited american's changing appetites and rising competition. hostess is 87 years old. its president said he hopes to restructure labor agreements and cut costs in general. those are some of the day's major stories. now, back to judy. >> woodruff: as we heard earlier, mitt romney's tenure at bain capital has already emerged as a major issue in the campaign. tonight, we examine what's known and not about bain's record and romney's. one of the world's largest private investment firms, bain now manages roughly $66 billion. romney was its founder and led the company from 1984 through 1998.

during that time, bain invested in 77 businesses. a "wall street journal" analysis found bain made $2.5 billion in gains for investors from those businesses andid successfully turn around many of them. but both the journal and the "boston globe" also found that at least 20% of the businesses either filed for bankruptcy or closed down several years after bain invested. we look more closely at all this now with two reporters who have been examining the records. beth healy is with the "boston globe." and dan primack is a senior editor at "fortune" magazine. welcome to you both. dan primak, first of all, for those of us who don't work in the financial services industry, what does bain do? >> bain for the most part, they have a lot of different businesses, but their primary business is private equity. which basically means you buy a company, you try to improve it and then you try to sell it later at a higher price either another private equity firm,

another corporation or, in some cases, take it public. that's the gist of the business. they have investors who give them the money to do it, then they take a cut of the profits if there are some. the. >> woodruff: and beth healy, what's the role of borrowing in all this? we know a lot of this has to do with so-called leveraged buyouts. so what's the role of debt in all this? >> that's right. so when the company buys... when companies like bain buy a firm they also borrow a lot of money from the bank. in fact, they borrow much more than they typically put down. you might put down $10 million and borrow many tens of millions more or even hundreds of millions more. >> woodruff: dan primak, so the stated goal of a private equity firm involved in these buyouts like bain, what is it? what do they say their purpose is? >> make money for their investors. and the investors in a firm like bain and most other private equity firms typically are large institutions: pension funds, college endowments, private foundations, sometimes sovereign

wealth funds or public pension funds. their primary goal is to make money for their investors. that's their only goal and only fiduciary responsibility. >> woodruff: what is bain's sflord >> bain's record is very good. the way you judge is you can sometimes judge on returns. but most private equity firms keep those numbers under wraps and the only way they come out is if you have public investors. bain doesn't. the way you can judge it is bain is still not only in business but they keep raising larger and larger funds. the first fund romney raised when he was there was $36 million, approximately. right now they're raising billions, ten billion dollars for their funds. so they're doing quite well. >> woodruff: beth healy, is it possible to isolate how successful bain was during romney's tenure? how much money they made? how successful they were for their investors? >> yes, mainly because there's this deutsche bank report, a wall street report, that came out a number of years ago and we were able to examine it, others have as well. they made 88% a year for their

investors under romney's tenure, which is... was one of the best records in the business at that time. from '84 to '99. >> woodruff: so compared to the rest of the industry, they did well. >> that was an extraordinary return to get 88% a year. and they aren't making those type of returns any more today. it was a really good time in the '80s and early '90s, but it was an extraordinary return then. >> woodruff: dan pimak, what about the queson jobs? this, of course, has come up from the candidates during the campaign, both... especially rick perry, newt gingrich going after romney saying bain capital when he was there... in perry's word they're like vultures, they go in, they take a company that's in distress and lay people off, people lose their jobs. what is the record in terms of jobs at bain capital? >> the answer is we really don't know. the original claim that romney

made was that they had created over 100,000 jobs. first it was tens of thousands, then it became a hundred and when he just said that it's true. look, they used to be venture capitalists when they began. so they actually started businesses. not these leveraged buyouts. staples alone today has 80,000 employees. so saying 100,000 is defensible. the problem is romney's now saying that's net. in other words it's not just the jobs we created, we're subtracting the ones we've lost. you can't say that, bain never kept track of the jobs created or lost. bain never kept track of it. romney's campaign has not suggested at all they've done the leg work at all to find it out soomney's claim of net job increases, he might be right but he has no way of knowing and neither do we. >> woodruff: beth healy, what does your reporting showing about that? romney claiming 100,000 jobs or more were created under his leadership. >> well, we know bain isn't disputing those numbers, but probably that figure is based mostly on staples, dominos,

sports authority, these kind of very big retail chains with lots of jobs and potentially lots of turnover, too, actually. and at other companies that they invested in, they did add jobs, but they also lost jobs when they had to close factories and when the investments didn't work out and when they were cutting costs. >> woodruff: but they would argue in the defense of bain capital that that's what they're designed to do. to create return for the investor. is that correct? >> absolutely. that is absolutely their job. and they would tell you that they'd much prefer to grow companies than to fire people but it happens. it's happened at a number of instances. >> woodff: dan primak, how is success measured, then, at a company like bain? is it purely the profits that are earned for the investors? >> it is, look, you obviously don't want to have... not just from a p.r. perspective but

these are people, nobody likes to fire people or lay people off or shut down factories. and ultimately it is profits but they kind of should go hand in hand. bain, indeed, through some financial engineering was able to make money on companies it bought that ultimately failed. it's a tricky process but you acually can do it. in general, the way private equity firms make money and the way you make the returns beth was talking about is by growing businesses and that should mean adding revenue, adding employees et cetera. in the end, it's profits, that's what firms are supposed to do and to be hon fest that's not what they were focused on primarily their investors would leave and also could theoretically sue them for it. >> woodruff: beth healy, you've been looking at bain for quite some time. i was looking at a story you worked on in 2007 looking at the history of the company and at mitt romney's involvement in the company. how would... how do you... how is it possible to quantify his success there? i mean, we've talked about

profits, we've talked about jobs. what's a fair measurement in thely. >> well, i think the return is a big deal. another thing that happened is bain was able to raise the amount that... the cut they take on the profits to 30%, which is higher than most anyone else in the industry. most people charge 20%. most of the firms. and because the experience was so good underomney for his investors they were willing to pay that much more. >> woodruff: staying with you, beth healy, if someone were to say the company that does what bain capital does, does it add to the economy? is it a net balance because one side or another money comes money goes? i mean, is there a way to say what it means for the american economy? >> i think it's very difficult to say whether it's a net gain

or a net loss. they would argue it's a net gain. many academics that would argue there are companies that are having problems and there's an investor willing to come and put money into it and overhaul those companies potentially saving jobs and growing a company that the company could have gone away. sometimes these companies were on the brink of failure, on the brink of big layoffs anyway. in the end a lot of what gets created is a lot of money from the investors. now the investors are endowments and pensions and other people like us who could possibly also be gaining from that money. >> woodruff: just quickly, dan primak, on the question of helping or hurting the economy, what would you say? >> i agree with beth. on the jobs issues specifically, there was an academic study done a couple years ago by somebody at harvard and they looked at a

bunch of census data and i.r.s. data and what they found was that private equity-backed companies had a slightly worse job creation record than did non-private equity backed companies but it was relatively slight. unfortunately the way that data got compiled, you can't pull bain specifically out of it. it's difficult to say and it's firm by firm and you might have one huge win like a staples and a bunch of smaller losses or vice versa. >> woodruff: we will leave it there. dan primak, beth healy, thank you both. >> thank you. >> thank you. >> ifill: taxes are already a major issue in the republican presidential primary. and they've been at the center of budget battles throughout the past year. "newshour" economics correspondent paul solman explores the question of just how high tax rates should or shouldn't be. it's part of his ongoing reporting "making sense of financial news."

>> we as republicans are not going to support tax increases. >> reporter: the debate over taxing the well-to-do. on one side, the republicans in congress, all but 13 of whom have signed a pledge: never raise taxes, certainly not now, and certainly not on the rich. on the other side, president obama, leading most democrats with a pledge of his own: tax the rich more, above all those who make more than a million dollars a year. >> and i know that many of our wealthiest citizens would agree to contribute a little more if it meant reducing the deficit and strengthening the economy that made their success possible. >> reporter: to get back to the basic economics of this debate, we thought we'd start with the man as responsible as anyone for bringing taxes on top earners down from 70% in 1980 to 35%

today: ronald reagan's controversial economist, arthur laffer. >> i'm being pinned as being some right-wing nut. you know, all i want to make very clear is taxes do matter. >> reporter: his life threatened, his california home vandalized, laffer dropped out of the public eye for years, moved here to nashville, tennessee. but though he's an avid collector of fossils, he's no dinosaur, and was more than willing to sketch the skeleton of perhaps his favorite specimen, first conjured back in 1974. >> first, you have two axes... >> reporter: laffer doodled his original laffer curve on a napkin for, among others, dick cheney and donald rumsfeld of the ford administration. tax revenues are on the horizontal axis; tax rates on the vertical. >> total tax rates at 100% up here. now, obviously at 100% tax rate, if you make nothing for doing

the activity you won't do it, and there will be no revenue. >> reporter: that's because, according to laffer, if the government taxes away all income, people will stop working entirely. >> no one will work and there will be zero revenues. and obviously at 0% tax rates everyone will work like mad but you still won't get any revenue. >> reporter: in between, a smooth curve representing laffer's pretty simple idea: somewhere above 0% and below 100%, there is a tax rate where government will collect the most revenue in any given year. now, the laffer curve applies to everyone. but the top so-called marginal rate is only relevant to the rich. it's now 35% on all taxable income in excess of about $380,000 a year. does that 35% rate maximize total tax revenue for the government? we'll get to the question in a bit. but arthur laffer certainly doesn't believe the tax rate shouldn't be any higher.

>> you raise tax rates, you collect more money per dollar of income but then you have the economic effect which if you raise tax rates you reduce the incentives for people to do the activity and you get lower income. >> reporter: but because a low top rate encourages the rich to work harder and earn more, says laffer, they'll invest more, create more jobs, and increase total tax revenues in the long run. and thus, the key policy question that has driven the tax debate ever since arthur laffer first put pen to napkin: what is the optimal top tax rate for the good of the economy as a whole? laffer's position has never wavered: set the tax rate well below the point of maximum short-term revenues. >> what do you do when you raise the taxes on the rich? they employ less people than they otherwise would have employed. those people will have less income tax, they'll have less payroll tax, there'll be less sales tax, less property taxes. >> reporter: but we don't

actually know that, that's the inference you're drawing. >> no one disputes that taxing something will get less of it. i mean do you really think taxing tobacco makes peop smoke more? do you really think fines on speeders make speed more? i don't think so. >> reporter: case closed? not quite. >> i think arthur laffer has it exactly backwards. >> reporter: david cay johnston is an expert tax journalist, and a successful businessman as well. >> i'm in the top 1%, and i'm trying to make every extra dollar i can even though i'm at the top marginal tax rate. i can't imagine saying, "no, i'm not going to take this opportunity to make more money because i'm going to have to pay 35% of it to the federal government." i mean, that's... that's nuts! >> reporter: a registered republican, johnston says a higher tax rate wouldn't encourage most high earners to slack off. in fact, it might have the opposite effect. >> if it's important to people at that level to have the same after-tax income, what are they going to do? well, they're going to work harder, they're going to work

smarter, they're going to figure out how to make even more money and make their business even more successful so they can have more money, and if they don't do that the difference in their after-tax income isn't going to matter to them and it's not going to matter to society except we'll have more tax revenue to fund the things society needs to be prosperous. >> if it causes the economy to be worse, would you like to get more revenue from them and have the unemployment rate go up to 11%? is that what you'd like? >> reporter: well, of course not. but is that what would happen? not necessarily, says nobel laureate economist peter diamond, a tax expert. you may recall he was nominated by president obama for the federal reserve board, blocked by senate republicans. >> if you want to shoot tax dollars in the direction of business creation, you've got to ask: "who is it that's having trouble getting financing?" it's not the high earners. it's further down the income distribution. >> reporter: so if i understand you correctly, you're turning

this argument on its head in a way, and you'd say if your objective is to create more jobs, you might want to lower taxes on people further down the income ladder. >> those are the people having trouble starting businesses. the top 1% have wealth; they have high earnings; they have an ability to borrow. if they want to do a start-up, they're not going to be limited by the fact that they're paying a higher, or somewhat higher, tax on their earnings. >> reporter: now, diamond buys the basic concept of the laffer curve and agrees that tax rates should be kept below the point at which they start to discourage work. >> you never want to go into that part of the curve. >> reporter: but since he disputes the premise that it's the wealthy who need low taxes to create jobs, he sees little harm in raising their taxes when government really needs the revenue. >> we have a lot of studies,

based on the available data, on the relationship between tax rates and the amount of revenue we get. it's very close to certain that the current 35% is almost surely below, and comfortably below, what would maximize the revenue. so i'm very comfortable that the top marginal income tax rate-- high 40s, 50s on up, maybe even into the low 60s. >> reporter: so according to the data, says peter diamond, the laffer curve might really look some thing like this. and where would diamond himself put the top tax rate? at about 49%, still comfortably below, he says, the point of maximum tax revenue. 49% or so would have positive economic effects, short-term and long, by financing government

investment in infrastructure, education, research and development says diamond-- all key components of economic growth. in fact, arthur laffer is sympathetic. >> but i don't think we can determine which dollar goes where. that those dollars are going to go exactly on the margin to infrastructure. they might go to afghanistan, they might even go to iraq, they might go to welfare payments, they might go fraud corruption and abuse. we don't know where those dollars go! >> reporter: but might the benefits of more tax revenue, more government spending exceed the costs of higher taxes on the wealthy? >> honestly, i've been wrong in my life and we have new research coming on and all sorts of things happening. but we have to make a call. and i don't think raising tax rates in the upper income groups, all right, makes sense in this economy at this time. >> reporter: by contrast, peter diamond and david cay johnston do. and according to at least two

dozen polls in the past year, so does a solid majority of randomly selected americans. although it's worth remembering, they could be wrong, too. >> woodruff: next, the supreme court rules on employment discrimination in religious schools. margaret warner has our story. >> warner: the case involved a teacher with part-time religious duties at a lutheran church-run school who claimed employment discrimination after she was fired. today, the justices in a unanimous ruling said her church employer is protected from such law suits. it was the first time the high court has upheld the so-called ministerial exception to anti- discrimination laws. marcia coyle of the "national law journal" joins us now, as always, to walk us through today's decision. marcia, welcome back.

what's the story behind this case? >> well, cheryl parrish was teaching at a lutheran church school in michigan. she taught secular subject but she also took religious training in order to get the designation a called teacher. this.... >> couric: called teacher or minuter? >> called teacher. but as part of her duties she would lead the students in prayer. she also might take them to the church for services but many of the lay teachers at the school also did the same thing. she needed a leave of absence in order to get treatment for narco leprosy and when she... and her doctor felt she was ready to return to teaching, she approached the school and was basically told that in the interim they had hired someone else and that there would not be a place for her. she still showed up when she thought her leave was over and she was told that she would be

fired unless she resigned. she refused to resign and she was fired and she felt that this was a violation of the job bias law known as the american with disabilities with act. she went to the equal employment opportunity commission which filed the suit on her behalf and she joined that suit. she lost in the lower court but when she appealed she did win because the court found that despite what's called the ministerial exception, she did not have ministerial functions at the school. >> warner: and this as i recall... you came on the program to talk about in the october, this had quite an argument far case that ended up being unanimous. >> it did. there was there was a lot of concern by some justices that if the ministerial exception was very broad it would sweep within it really a teachers who didn't have a ministerial or rigious duty. >> warner: on what basis... and

this was chief justice robert's written opinion. on what basis is did they decide she did qualify? >> the chief justice said this exception is grounded in the first amendment. he spent a lot of his decision tracing the history of the conflict between government and churches, going all the way back to 1215 and the magna carta and those concerns he said were very much in the minds of the framers of the first amendment. he said if you impose an unwanted minister on a religious organization that violates the free exercise clause which protects churches' right to shape their faith through their hiring decisions and he said also if you give the state the power to determine who is in a minister, you violate the establishment (cheers and applause) which prohibits government interference in purely church decisions. >> warner: so the question is how broad is this? one, would it apply to teachers who strictly taught secular subject or someone who worked in the cap cafeteria and, two,

would it apply to other sorts of discrimination suits say based on race or gender? >> the plus in his opinion was very expris it is that first this case deals with employment discrimination and the decision relates to employment discreme nation suits only. he said the court doesn't express any juice on any other types of suits by religious employees for, for example, breach of contract or injuries they may have endured on the job. he also made it very clear that church employees can still bring these suits to federal court but the ministerial exception is going to be a defense and the judges will decide whether the claims will go forward. >> woodruff:. >> warner: so this court did not say what constitutes a minister. >> no, he said that for... it includes more than just a head of a religious organization. but he said the court was

reluctant to adopt a rigid formula for deciding who falls within the ministerial exception. he said it was enough for now since this was the first case they ever had to look at cheryl parrish and her circumstances, which he did. he went through the fact that she was held out by the church as a minister, she held herself out as a minister and her duties reflected that she was shaping or communicating the faith to the students. >> warner: does this suggest there may be more such cases? >> there may well be and even though it was a unanimous opinion it was interesting. there were two separate written opinions, one by justice thomas who, although he agreed the court, neat the court shouldn't second-guess a good-faith determination by a religious employer that somebody is a minister. >> warner: marcia coyle, "national law journal," thank you. >> my pleasure.

>> ifill: finally tonight, a decade after the detention center at guantanamo began accepting prisoners, the debate continues over how the u.s. treats its terror suspects. jeffrey brown has the story. >> brown: they rallied in the rain today across from the white house to protest the ongoing detention of foreign terror suspects at guantanamo bay, cuba. some of the more than 200 protesters wore orange jumpsuits and black hoods to mark ten years since the first 20 prisoners arrived at guantanamo. at its peak, guantanamo housed nearly 700 men. more than 500 were released or transferred to other countries during the bush administration. the facility currently holds 171 detainees, with 36 awaiting military tribunals on war crimes charges. among them is khalid sheikh mohammed, the alleged mastermind of the 9/11 attacks, expected to be arraigned at guantanamo later

this year. the obama administration had wanted to try him in federal criminal court in new york city, but dropped the idea in the face of strong opposition. congress has since barred moving any of the detainees to the u.s. mainland for trial. that in turn has effectively prevented any attempt to close the prison once and for all. in the meantime, there's a renewed focus on the broader question of how to handle terror suspects. a provision in the recently passed national defense authorization bill requires the military to take custody of foreign terror suspects linked to al-qaida, unless the president specifically rules they should be held by civilian authorities. it also allows indefinite military detention without the right to trial. but the interpretation of both provisions remains in dispute. the bill was debated in the house last month. >> congress has not tried to curtail civil liberties like

well, here we are today trying to return to an era of arbitrary justice, witch-hunts and fear- mongering. while this measure includes an exemption for united states citizens, it doesn't protect them from indefinite detention. >> the provisions in this bill, mr. speaker, are a small step towards having this congress back involved in making these detention decisions. >> brown: white house officials initially warned that president obama would veto the bill. congress me modifications, and he ultimately signed it, while on vacation in hawaii. but, he added in a statement: "i have signed this bill despite having serious reservations with certain provisions that regulate the detention, interrogation, and prosecution of suspected terrorists." the protesters at today's rally in washington made clear the issue will not go away and legal challenges to the law remain possible. now two views of where things stand: vincent warren is executive director of the center for constitutional rights,

which has defended detainees at guantanamo and helped coordinate hundreds of lawyers providing pro-bono legal work there. david rivkin is an attorney who served in the reagan and first bush administrations. he's filed supreme court and appellate amicus briefs in several leading national security cases since 9/11. i'll try to keep my throat clear. cold coming on. welcome to both of you. vincent warren, what's your chief concern here with the new legislation? specifically when you look at the issue of indinite detention of suspects. >> you have to look at guantanamo. here we are ten years later. there are only three ways you get off the island of guantanamo one is going to trial, two is by being transferred to another country and the third way is a body bag. and the new legislation which codifies indefinite detention restricts the ability to be tried in federal courts and it also restricts the ability for people to be transferred off the

island. that's a huge problem. >> brown: do you see this david rivkin as something new? >> no, i do not. in fact, this legislation does not in any way alter parameters of pre-existing law. nobody would not have been detained in military custody or prosecute bid military custody before it was enacted or brought into this regime now. the real thing, i think, that concerns people-- and this debate is a surrogate for the broader debate about the elements of the laws of paradigm to this conflict. the real significance of the legislation, frankly speaking, is it provided political prapl ma tour by congress. for the first time, congress has explicitly put its stamp of approval on what heretofore has been done either based on indirect congressional support, executive branch practices and judicial decisions.

what's interesting for years is the critics have been asking for two political branches to speak in union, chef done so now they just don't like the answer. >> brown: what is your response to that in this broader context of congress and the white house? >> i think the big problem here, of course, is that if you look at the indefinite detention pieces, particularly those with respect can you detain u.s. citizens on u.s. soil, the potential for that, the bush and the obama administrations have taken the position that that is authorized under previous congressional authority but that's never been settled in the courts so i disagree. i don't think this is status quo. i think what it does, the codifycation is about the calcification of an indefinite detention policy. it's put indefinite detension on the table. congress is setting the parameters for what that looks like and that's something that's new. >> for respect it's just not true. the supreme court and the opinion by justice o'connor as clearly spoken.

the proposition that... and i it that word indefinite. it's not true. you can detain an enemy combatant and all that matters is to challenge the status classification. the determination that person is an enemy combatant and there's a process late out in the hamdi decision, there's a padilla decision, there's nothing new. but we should be having a broader conversation about why it makes sense to use not solely but at least part of arsenal tools available of political branches. the plausible paradigm, the problem i'm afraid of my colleague here does not believe it's war. he think it's another set of law enforcement problems to be treatly purely for civilian justices. >> brown: will you go to that kib of paradigm or do you think the way we started this, which is looking at it through how to detain and how to try is the way to look at it?

>> we have in this country confused the war paradigm and the law enforcement paradigm and the n.d.a. is the precise example of that. and my colleague is right that the supreme court has.... >> brown: you mean it's codifying the war? >> it's codifying... >> that's one approach. >> it's codifying the conflation of it in my view. because the supreme court has spoken to the issue in hamdi but in the padilla case where you had someone that was captured in the united states and the bush administration tried to push him into military custody, before the supreme court could rule on it, the bush administration moved him out because, frankly, because they thought they were going to lose so in fact the broader discussion really here is about to what extent should law enforcement actions and crimes be treated as crimes in the u.s. and to what extent should crimes of war and violations of the war be treated as military... >> let's be honest. do you not accept the notion--

as many critics allege-- that propound the exclusive use of the civilian justice paradigm? would you support the trial of somebody-- at least high-valued detainees, clearly individuals who are enemy combatants by revamped military commissions that operate in full accordance with the constitution, with the highest standards of military justice or do you think they're all a bunch of mongerers and rapists and bank robbers to be tried in the district courts? >> i would support military courts for people who have violated the law of war. but what i don't support is a conflation of criminal activity and military activity by calling the u.s.a. battlefield and anybody captured on the battlefield of the united states has the option of going to.... >> brown: the president signed off with reservations. do you think he should not have signed off on the bill all together? >> i think when the president signed off on the last n.d.a.a. he signed off with reservations

and one was that he would veto a future into bill which, of course, he didn't do this time. i don't think that reservation is.... >> brown: and what of guantanamo? the ten years later, here we are. >> guantanamo has to stay open but as i said guantanamo is going to stay open prior to the passage of this. but it's interesting, let's look at it. guantanamo has been condemned by this president. this president and his attorney general came in, tried to close it, they worked it through political process, lots of democrats in congress have opposed it. that's how the political system works. guantanamo is going to stay open but not only as a matter of political reality. guantanamo is essential not as a specific place but ask yourself this question: if it's real war when have we ever had a war in human history that didn't have a detention component or a prisoner of war camp. it's not just people there now. there's an american an individual who killed american soldiers in iraq.

there were demonstrations to bring him to guantanamo. >> brown: do you see guantanamo any change in the future? >> the question that really should be asked is when have we ever seen a war that has no geographical location and no time limit. that's why guantanamo has to close. >> we have to leave it there. vincent warren and david rivkin, thank you very much. >> good to be with you. >> woodruff: again, the major developments of the day: the battle for the republican presidential nomination turned to south carolina with rivals stepping up the attacks on frontrunner mitt romney. assassins on motorcycles killed a top nuclear scientist in iran with a magnetic bomb planted on his car. iran blamed israel and the u.s. -- a charge that washington flatly denied. and syrian president bashar al- assad made a rare public appearance at a rally in damascus. he predicted victory over the rebellion against his rule. our coverage of the presidential campaign continues online.

hari sreenivasan explains. hari? >> sreenivasan: find more on the results of the new hampshire primary. plus, judy filed a blog post on romney's standing with conservatives after winning the first two contests this year. on our "world" page, our reporting on haiti, two years after the earthquake continues with one woman's story of surviving a rape in a tent camp plus an update on getting prosthetic limbs to people who need them. and on our "health" page, we start a series of on-air and online reports on children with cancer. tonight's post explores the emotional side of treating teens including rock star roger daltrey's efforts to help. all that and more is on our web site: newshour.pbs.org. judy? >> woodruff: and that's the "newshour" for tonight. on thursday, we'll have one of those cancer stories on the broadcast. it's about successes in fighting pediatric cancer. i'm judy woodruff. >> ifill: and i'm gwen ifill. we'll see you online and again here tomorrow evening. thank you and good night. major funding for the pbs newshour has been provided by:

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